The FSA has fined a Kent IFA £14,000 after more than 20 clients were ‘unsuitably’ advised to redeem offshore bonds and invest in new ones, netting nearly £100,000 commission for the firm.
Henry Neil Ltd of Chislehurst was found to have “failed to demonstrate that its advice on investment products was suitable”, the FSA said. The fine would have been £20,000 had HNL not settled at an early stage in the investigation, the regulator added.
The problems at HNL were identified following visits by the FSA, and occurred between 10 June 2005 and 22 September 2008.
According to FSA documents, the company received a commission of almost £100,000 as a result of recommendations that the FSA said appeared to breach its so-called Principles for Businesses, which set forth the steps it expects financial advisers to take to ensure investors’ individual needs and risk appetite are adequately considered.
Altogether the FSA said some 22 HNL customers surrendered segments of their bonds and reinvested the proceeds in new bonds during the 39-month period, but nine had been the result of advice from the customer’s own accountants or solicitors rather than HNL.
“HNL could not demonstrate that it provided its customers with adequate information in respect of its bond reinvestment recommendations to ensure that they were in a position to make an informed decision – [and] in so doing, it exposed at least 13 customers to the risk of being sold investment products which were not suitable for them,” the FSA said.
This “inadequate risk assessment” meant that HNL “was unable to demonstrate that it sold products to customers which were suitable to their risk profile and personal circumstances”, it said.
‘Mitigating factors’
However, HNL had taken a number of steps as a result of the FSA’s investigation that the regulator said it regarded as “mitigating factors” in its final decision in the case, including the appointment by HNL of an external compliance consultant to conduct a risk-based phased past business review of investment products sold between 10 June 2005 and 31 December 2007.
Any customers found to have suffered a loss as a result of this review would be compensated, and the external compliance consultant would continue to sign off on all new business for six months.
In addition, bond reinvestment recommendations represent only “a small proportion of HNL’s business,” the FSA noted.
HNL was described in the FSA documents as a small firm with one director and four customer advisers, including the director, which received FSA authorisation in June 2005, the starting date of the "relevant period" cited by the FSA.
Advisory firms on notice
FSA director of enforcement Margaret Cole said the fine levied on HNL puts other FSA-regulated investment advisory firms "on clear notice that they must have the right arrangements in place to ensure that suitable advice is given and recorded.”
Where firms cannot demonstrate that they provider their customers with all the necessary information to decide whether their recommendations are right for them, including information about relevant costs and charges, “we will take action which will include imposing disciplinary sanctions where appropriate”, Cole added.
